Corporate Governance for Banks in Southeast Europe: Policy - IFC

IV. The role of supervisors 75
A sound governance culture drives performance
and is able to moderate the tension between profit
maximization and prudent risk taking. However, there
are issues that require regulatory intervention. Systemic
risk is an example, because market forces and individual
banks cannot address it.
Regulators are becoming more proactive internationally
and are seeking to extract lessons from the recent
financial crisis. At the same time, SEE countries are also
working to enhance the basic regulatory framework,
principally by focusing on the basics: transparency,
risk management, retail lending, licensing of foreign
branches, and so on. Generally, such regulatory efforts
reflect the requirements of EU legislation.
Increasing Interest of Supervisors in
Bank Governance
“I think that regulators will increasingly be
taking corporate governance of banks into
account as part of their risk assessment for
banks, and not before time. Regulators
do not want to regulate on the structure
of a board but they are concerned that all
members of the board, both executive and
non-executive, understand the complexity of
their organizations and have a role to play.”
Ian Radcliffe, United Kingdom
There are, however, concerns regarding their
“transplantability” to the SEE region. A common concern is that banks comply on paper while falling far
short of the impact intended by law. The standards being developed at the global and regional levels are of
undeniable importance and relevance, but SEE needs to have a less complicated regulatory framework and
solutions that are in step with its stage of financial sector development and adapted to the needs of smaller
countries.
Another key concern is implementation. In many cases the implementation of policies at both the supervisory
and bank levels is quite mechanical, and it is not uncommon for form to take priority over substance.
Provisions in law, put in place with the best intentions, can have unintended consequences.
A. Guidance by supervisors 76
Supervisors are expected to provide guidance to banks concerning corporate governance. This is particularly
important where rules, practices, and legislation do not address the singular governance aspects of banking.
International guidance
A large number of international bodies provide guidance on corporate governance, including the EU, the
Committee of European Banking Supervisors, and the Financial Stability Board. Furthermore, the OECD
Principles of Corporate Governance have influenced many of the local rules and much of the legislation in the
region.
Each of these sources is valuable; however, none is perfectly suited to the needs of SEE banks. For example,
the OECD Principles are the global benchmark, but are generally aimed at larger listed companies and do
not deal with the specificities of the banking sector. The Basel Committee Principles for Enhancing Corporate
Governance are sector-specific but focus on the problems of sophisticated banks in more developed markets.
75 2010 BIS Principles, Section IV, p. 30.
76 2010 BIS Principles, Section IV.1. p. 30.
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Policy Brief
Corporate Governance for Banks in Southeast Europe